In a small village called Katiahat, West Bengal, men and women are predominantly engaged in agriculture. Sudha (name changed) and her husband are also involved in the same, working as agricultural labourers.

Sudha wakes up at 5 am to do her daily chores – finishes her ablutions and religious rituals to leave the house by 6:30am with her husband. In a nearby field, they plough, sow, and till the land in the same fashion, devoting an equal number of hours. But at the end of the day, Sudha ends up earning Rs 30 less than her husband.

“That’s the standard rate, and everyone pays the same,” says Sudha.

She, like the rest of women in the village, knows this disparity, but they are so used to it that no one questions the authority; money is money after all, even if it is Rs 30 less.

Micro-finance and women's empowerment

With the advent of neo-liberal ideas, the free market has grown by leaps and bounds, and so has the economy of developing countries. The ones that were staggering started growing by giving small credits and consolidating the informal sector.

Small credits or micro-credits are given in rural areas primarily to women. What started as a revolution in Bangladesh during the 1970s with the inception of Grameen Bank slowly started spreading across developing countries.

Women were inducted into the programme, they were given small loans to start their own businesses, to make them self-reliant and provide employment. The insinuation behind this gender-driven initiative was the tenacity and responsiveness that women were able to show, when it came to handling money for their own households.

It was noticed and feared that men would bounce on their loans and spend it on themselves rather than utilising it for building assets. Women were the safer bet; from a business point of view, female clients register higher repayment rates. It was portrayed as a scheme that would consolidate economic independence and gender equality within the rural masses.

For this purpose, small credit groups are created and women and given loans based on their needs.

But the lacuna to this grand plan was this: women's participation in building assets was far less than it was thought to be. In different reports and studies, it was found that most women were not the direct beneficiaries of the small credits. Instead, women acted as a channel for the male members of the family to get the loan.

Aminul Islam from the Varendra University, Bangladesh, says: “Most rural women in Bangladesh used the money to pay the dowry for their daughters; it did not particularly lead to any women's upliftment, nor was it utilised to build business enterprises. In fact, in some cases, women's positions were relegated.”

The situation in West Bengal

A similar situation was noticed in different parts of West Bengal, where women readily agreed that although the loan was taken by them, it was in fact utilised in agriculture by their husbands. Sahiba Khatun (name changed) says: “I never falter to pay the interest on time, but the money goes into my husband's pocket, he knows where he spends, at the end of every week, he gives me the amount and I pay it back in the branch. I have no idea what is profit or loss. We are dependent on them (micro-financing units) because banks wouldn't give loan to my husband. They need collateral.”

Although in most cases women were more than happy to get small loans, which the family was utilising for different purposes, there seemed to be no direct relation between micro-credits and women's empowerment. In fact, child marriage and illiteracy were rampant among women and girls in West Bengal.

Rupa, from Falakata, West Bengal, has been taking loans for years from MFIs. She says: “I will get my daughter married by next year, that's why we pulled her out of school. She now needs to learn household work. We are planning to take a loan for my son's education.”

Experiences from the ground

Millennials who have worked in different parts of the country with various micro-finance organisations shared their experiences with this author.

Ritika Puri, 26, who has worked as a fellow in rural Odisha, says: “Gender disparity is widespread. Women are barely part of the economic decision-making. Though the MFIs put up a show of giving out loans only to women members of the family, in a high percentage of cases, the money is used for/by the businesses run by the male members of the family.”

Shrutanwita, who works with an MFI, says: “The first thing about micro-finance is, it gives you an idea that it is a social development tool rather than a business model. However, that's not true at all. Women's empowerment is just a misconception attached to micro-finance. Women in rural India who take these micro loans, don't even use the money themselves; they are just being used to get the loans by their husbands. They are mostly illiterate, and do not even understand how much interest they are paying. Whenever I have visited the rural areas for my work, I have seen the wife, running a handloom, has taken a loan to fix the loom, but given away the loan money to the husband. When asked about the use of the money, they would say it was used for their husbands' businesses, but had no clue how their husbands used it.”

In most rural areas, the idea of growing up is associated with marriage for girls. Parents get their daughters married before they can even reach the legal age, and education loans are mostly used for teaching male children, not female.

No tangible impact

According to a research study by the World Economic Forum, in 2015, in Bosnia and Herzegovina, Ethiopia, India, Mexico, Mongolia, Morocco, and the Philippines, “access to micro-credit also did not appear to have tangible impacts on borrowers' well-being or the well-being of others in their households. For instance, three of four studies found no effect on female decision-making power and independence. In Mexico, where the micro-finance institutions emphasised empowerment, women did enjoy a small but significant increase in decision-making power. In six studies, micro-credit access did not increase children’s schooling.”

Although they are a business, most small-scale MFIs register themselves as non-profit organisations, charging as high as 26% of interest for business loans.

Ritika says: “Borrowers have to pay an enormous interest rate for every small amount of money they are lent out. The interest rate cap by RBI has been fixed to 26%. And most MFIs charge this upper limit rate on the micro loans given out for business purposes. Loans for other purposes like education or solar/energy loans, i.e. non-income generating loans, have slightly lower interest rates, but never less than 18%.”

Additional note: While most of the developing countries perceive micro-credit as a tool to eradicate poverty, on the ground, it only enhances people's 'freedom of choice' in how they decide to spend the money, which does not necessarily mean it would be used for asset building.

Some MFIs try and incorporate financial training to their women borrowers, which in turn can lead to financial independence. However, the financial status of women should not be a bar to measure social development index.